Morgan Stanley Grabs AUM Crown from Merrill Lynch

John Thiel, the head of Merrill Lynch’s storied brokerage franchise, has long bristled over references to rival Morgan Stanley as the world’s biggest brokerage firm.

The Smith Barney-fattened Morgan Stanley may have a bigger salesforce than the Thundering Herd, Thiel said in an interview two years ago, but Merrill’s wealth credentials in areas such as client assets under management and profitability are what really matter.

That defense lost some of its punch this week.

Morgan Stanley on Monday reported that client assets in its wealth management division hit $1.999 trillion as of March 31, surpassing the $1.997 trillion of client assets held at Merrill Lynch Global Wealth Management at the end of the first quarter.

A spokeswoman at Merrill Lynch declined to comment. A spokeswoman at Morgan Stanley did not immediately respond to a request for comment.

Bank of America’s wealth business, to be sure, remains more profitable than its rival. It reported $740 million of first-quarter net income at its Global Wealth and Investment Management division, which includes Merrill and the smaller U.S. Trust private bank. Morgan Stanley’s first-quarter wealth profit was $493 million.

When it comes to profitability and revenue trends, neither firm had much to brag about in the first quarter.

Client assets — the major determinant of fees — fell about 2.3% at both firms from one year earlier, as market volatility shook investor confidence and, in some cases, portfolio values.

More disturbing in what is traditionally a strong season for retail wealth is that new money from clients plummeted. “Flows” into fee accounts at Morgan Stanley fell 56% to $5.9 billion from $13.3 billion in the first quarter of 2015. At Merrill and U.S. Trust, outflows from client accounts outpaced inflows by $4.3 billion, compared with net inflows of $13.1 billion in the year-earlier quarter.

In the productivity battle between Merrill and Morgan Stanley, Merrill’s 14,413 brokers prevailed with average annualized production of around $983,000, based on first-quarter numbers. Morgan Stanley’s 15,888 brokers produced on average annualized revenue of $923,000.

Each retail giant flaunted respectable pretax profit margins in their wealth businesses — 26% at Bank of America compared with 21% at Morgan Stanley. Both did it through extensive expense-cutting, which their chief executives said will continue through the year.

In one measure that brokers monitor to track their business status, wealth management is more dominant at Morgan Stanley than at the colossal Bank of America. In the first quarter, it produced 50% of Morgan Stanley’s revenue and 44% of its profit.

Global Wealth and Investment Management contributed 23 percent of its parent’s first-quarter revenue, the second-highest of the bank’s four main business units in a period when investment banking and institutional trading suffered at Merrill and Morgan Stanley. Profit of $740 million at Bank of America’s wealth division remained the smallest of its four principal business units.